Monday 31 January 2011 01.59 EST
First published on Monday 31 January 2011 01.59 EST

It has an enviable roster of much-anticipated US shows including Boardwalk Empire, Treme, Game of Thrones and Mildred Pierce, and rights to HBO's covetable back catalogue. So when Sky Atlantic arrives in 10m Sky homes tomorrow night its competitors will be watching keenly.

BSkyB is betting big on Sky Atlantic – although a full budget has not been revealed, the HBO deal is reported to be costing £150m over five years, and the broadcaster outbid the BBC for AMC's Mad Men. But is the new channel late to market?

Never afraid of innovation, Sky would have liked to launch it years ago; in 2003 this paper reported attempts by Dawn Airey, its then head of programmes, to secure the exclusive deal with HBO that will contribute 40% of Sky Atlantic's schedule. More than seven years later, the channel finally launches.

And what a launch it is, with Sky flexing its bulging content muscles and letting loose a blast of marketing fanfare. But it is some time since launches of this ambition were a feature of the UK TV market – and with good reason. While content innovations have helped drive digital TV takeup, switchover is now almost complete. There are fewer than 2m (of 26m) homes without a digital service, and two years to go. Few remaining analogue homes appear to fit Sky Atlantic's core demographic of discerning, upmarket viewers with a shelf full of box sets. So what does Sky hope to achieve with the channel?

Competitive threat

Stuart Murphy, whose brief as Sky1 director of programmes includes Sky Atlantic, originally said that it was intended to get "Freeview viewers to reappraise Sky". A Freeview spokeswoman talks down the competitive threat, saying terrestrial homes will still have access to the most-watched digital channels. One analyst suggests the threat to Freeview from Sky comes less from the exclusive programming that Sky Atlantic offers, and more from the delayed launch of YouView - which could deny a viable upgrade path to HD and video on demand and leave Freeview "a sitting duck" for pay-TV rivals to shoot at.

Murphy is now keener to position Sky Atlantic as part of a broader investment in entertainment content – alongside the purchase of Living and increased budgets for Sky1 and Sky Arts – that forms the third prong of a strategy for driving subscriptions, alongside sport and movies. He describes it as having an "effect on people's sense of the brand and their propensity to get Sky".

Analysts believe that Sky's subscriber numbers are now likely to increase more slowly, after the stellar growth of recent years. When James Murdoch set Sky's 10 million subscriber target in August 2004, it had 7.4 million customers. It added more than 400,000 a year to reach that target at the end of 2010 – but it is thought that an annual figure of about 200,000 is a more likely average for the next five years.

Patrick Yau, of the brokers Peel Hunt, believes there is considerable opportunity for Sky in cross-selling broadband and telephony packages to existing TV subscribers, as well as continuing to upgrade standard customers to HD and Sky+, but concedes: "It's going to be more difficult now they've reached the 10 million [subscribers] mark to grow as quickly as before."

Murphy is bullish. "Ten million subscribers is a watershed, but it's not as if we've done a U-turn and immediately stopped talking about volume and started talking only about value," he says.

However, media analysts believe there's little evidence that people subscribe on the strength of a single channel. "Sky Atlantic is part of a chain of value, aimed at convincing people TV is worth paying for," says one analyst. "It's about [putting] clear blue water between pay and free TV. It's not so much a driver of dish sales as a retention tool … as well as justifying future price rises."

Airey, who remains a fan of the Sky Atlantic concept, also believes the launch is as much about "growing ARPU (average revenue per user) … and offering existing customers more value" as getting "[non-subscribers] to look again at multichannel TV".

But what does the launch mean for rival pay-TV providers? Virgin Media stresses that Sky has talked about "wholesaling" Sky Atlantic to other platforms, while also pointing to the continued availability of channels such as FX.

In fact the strongest short-term competitive impact of Sky Atlantic – when allied to Sky's acquisition of Living and an increased budget for Sky1 – may be on the acquisition strategies of other broadcasters; its lineup contains shows previously aired free-to-air, including Entourage (ITV2), Curb Your Enthusiasm (More4) and Big Love (Channel 5). "The fear for everyone else is how much other stuff Sky will hoover up," says one senior free-to-air broadcaster, who emphasises how vulnerable hit acquisitions are to poaching and price hikes. Sky, the executive suggests, is now the only UK broadcaster with the capacity to do sizeable studio output deals.

Murphy won't discount further output deals, but denies that Sky wields unfair power, suggesting its attraction for studios owes much to scheduling its output in peak and "not after Newsnight", broadcasting in HD and as close to US transmission as possible.

Sue Deeks, head of series, BBC Vision programme acquisition, points out the BBC has only acquired four HBO series in the last decade. She admits the BBC wanted to keep Mad Men but implies it couldn't compete on price. Deeks sees her role as finding the next Mad Men. "Even Sky can't take everything," she says, underlining BBC efforts to source acquisitions outside the US, such as Australia's Angry Boys (BBC3) and the Danish drama The Killing, airing on BBC4. The BBC believes Sky's deal doesn't prevent co-productions with HBO; it claims to be discussing a number of projects.

Acquisitions policy

Of the commercial broadcasters, it is Channel 4 that has the strongest associations with HBO. Although its acquisitions policy generally leans towards more mainstream network shows, there are signs that it is looking to edgier, more definitional fare from HBO of late, such as True Blood and Generation Kill.

Both insiders there and Deeks suggest free-to-air broadcasters may have to get involved in projects at development stage, rather than picking them up on the strength of a pilot, if they want to access shows from US cable channels in future.

The jury, then, is out on the likely impact of Sky Atlantic, although its parent has grown rich defying the predictions of pundits. Whether it has launched early enough to generate subscription and advertising revenues that would justify its investment is a question that could keep Tony Soprano and Dr Melfi busy for hours.